Deal-Driven Consumers Spend Like Scrooge This Holiday

Consumer spending rose briskly in November, the government said Monday, mostly driven by autos and other big-ticket long-lasting items. But with cost-conscious shoppers holding out for steep bargains, this holiday season may turn out to be a lump of coal for many retailers.

Spending rose 0.5% last month, in line with expectations and a bit more than the 0.4% increase in October. Sales of durable goods such as motor vehicles were up 1.9%. Nondurables fell 0.4%, partly on cheaper gasoline. At the same time, personal income rose only 0.2%, following a 0.1% dip in October.

But that's because low inflation is providing consumers some buying power, and retailers are compensating for unimaginative offerings with heavy discounting, he said. "The momentum will probably turn out to be somewhat transitory."

Discounting Heavy

Ken Perkins, president of Retail Metrics, said holiday discounting is at its deepest since 2009, when unemployment was at its peak. But it's been "absolutely necessary" for retailers to entice "deal-driven" consumers who've allocated much of their spending in 2013 to big items such as cars and home appliances.

"There just isn't enough money to go out and do both," he said. With wages stagnant and much of the new job creation centered on low-paying service jobs, Perkins expects the holiday season to turn out "lackluster."

"All of the attempts by retailers have not moved the needle in any meaningful way," Perkins said. "It's a zero-sum game where one retailer is taking business from another."

Brick-and-mortar sales at general merchandise, apparel and accessories, furniture and other stores fell 3.1% from the same week last year, according to ShopperTrak. Traffic fell 21.2%.

Target Hit

Target (TGT) transactions fell 3%-4% over the weekend in the wake of last week's massive credit-card security breach. The discounter limited the damage by offering a 10% in-store discount.

Personal spending is up 3.5% over the same period a year ago, a more tepid performance than in past economic cycles, Hembre pointed out. It's accelerated in the past few months, rising in three of the last four. But Hembre doesn't think confidence has risen enough to call it an inflection point in the economic cycle.

Consumer sentiment in December rose to pre-government shutdown levels, a University of Michigan survey found, but at 82.5, it fell short of the year's high of 85.1 in July.

"Wage and bargaining power remain weak," Hembre said. "The health care changeover is a source of uncertainty for some households. The momentum of existing home sales and prices looks as though it's stalled out."

On the bright side, he said, state and local governments have started to help drive the economy, rather than detract from it. The federal government also seems to have stepped out of the way. Consumers are feeling confident enough to begin borrowing, but not at bubble-inducing levels.

Inflation-adjusted consumer spending rose 0.5% in November, the best since 2010. The report's price gauge was flat for a second straight month, with the annual gain just 0.9%.

Perkins hasn't counted out the consumer, especially in categories like electronics. "I think there is some upward momentum," he said.

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03/18/2015 05:48 PM ET

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